Bill Clinton’s Surplus Miracle, 20 Years Later

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Standing behind a podium in the Rose Garden, President Bill Clinton delivered a bold prediction 20 years ago.

“Well ahead of the most ambitious schedule, America has balanced the budget,” he declared. “America can now turn off the deficit clock, long a sign of our leaders’ failure of will, and plug in the surplus clock, a symbol all Americans can look to with pride.”

Beside him, a large chart showed a $150 billion surplus projected through 2003.

In retrospect, this forecast looks laughable. We were running deficits again by 2002. Twenty years later, the reported national debt stands at more than $21 trillion.

In 1998, there was little indication of the financial challenges set to unfold over the next decade. But even leaving aside the cost of the U.S. wars and tax cuts, with the advantage of hindsight those sunny days in 1998 don’t look as bright as they may have seemed then.

Even as the Clinton administration took a victory lap with the projected surplus, then-Federal Reserve Chairman Alan Greenspan was reminding people that the Social Security Administration was sitting on approximately $10 trillion in unfunded promises. A study by Howell Jackson, a Harvard professor, had shown that if the program were administered using the same accounting methods required by private pension plans, Social Security was actually running a $500 billion deficit each year.

Why were Greenspan’s and Jackson’s alarming statements so different from Clinton’s rosy picture? It all comes down to what programs you include in the count. The federal government was using — and still uses — a very sophisticated method of accounting that I like to call “political math.”

Excluding Social Security obligations from the national debt allowed the White House to claim a surplus while the government’s financial obligations were actually increasing (this practice still exists, with the official national debt figures omitting $83 trillion in future Social Security bills). This financial approach is not dissimilar to infamous Enron accounting methods, where huge liabilities are not included on balance sheets.

In the federal government’s case, vast sums promised and owed for future Social Security and Medicare recipients are kept off the balance sheet. Taxpayers believe the money taken out of their paychecks is being held in trust, though that's not the case. Clinton was able to claim surpluses, because the Treasury Department was recording this money as revenue.

Unfortunately, these misleading accounting methods continue today. The Treasury Department reports the current national debt at more than $21 trillion, but this number is only correct if you believe our veterans and seniors are not owed all of the retirement benefits they have been promised. Steve Goss, chief actuary of Social Security, has stated, “Until benefits become due and payable, there is no binding commitment [emphasis added] over which a worker has control and so no liability can be recognized." In other words, the federal government does not officially owe anyone any benefits beyond next month’s check.

Political math works well for the elected officials who want votes, but it has been a financial disaster for the country. When taking into account unfunded Social Security and Medicare liabilities and promises made to veterans, the “true” national debt is more than $104 trillion. As in Clinton’s day, the official national debt figure obscures growing financial troubles.

You cannot be part of the solution to fix America’s financial problems unless you first have access to quality accounting data. So ask yourself: What are the long-term financial consequences of running trillion-dollar deficits? Why are unfunded Social Security and Medicare liabilities not included in the debt ceiling? When are our elected officials going to stop using political math and provide us with the truth?

I know this all sounds like a numbers game, but it is much more than that. The financial future of the United States is at stake. After all, an informed electorate is the basis of our representative government. Unfortunately, many of us continue to be misinformed.

Sheila Weinberg, CPA, is founder and chief executive officer of Truth in Accounting, a nonprofit organization that researches government financial data and promotes transparency for a better-informed citizenry.